Tehran, Iran - On the streets of Tehran and across the Iran's bazaars, the price of bread, medicine, and fuel can seem to change by the hour. The Iranian rial's recent plunge to historic lows against the dollar is not a new story but the latest, acute chapter in a decades-long economic tragedy. For ordinary Iranians, life feels like a perpetual state of hyperinflation, even if the textbooks reserve that term for more extreme monthly surges.
The rial's collapse is best understood as a chronic inflation problem that periodically erupts into acute exchange-rate crises. Economists point to relentless cycle driven by government financing needs, severe external shocks from international sanctions, and loss of public faith, all trapped within a convoluted multi-tier currency system.
The Unavoidable Math: Printing Money to Pay the Bills
At its core, Iran suffers from fiscal dominance - a condition where the state's budget deficits dictate monetary policy. Unable to access international debt markets or borrow sustainably due to sanctions, the government finances its spending through the banking system. The Central Bank of Iran effectively prints money to cover the gap.
The constant expansion of the money supply devalues the currency, pushing up prices. The International Monetary Fund (IMF) identifies monetary expansion, fiscal imbalances, and exchange-rate depreciation as a reinforcing "triple threat" that locks Iran in an inflation-depreciation spiral. As prices rise, the government faces pressure to increase subsidies and public sector wages, which widens the deficit, and the cycle begins anew.
The External Shock: Sanctions Strangle Foreign Currency
Iran's economy is structurally dependent on oil and petrochemical exports. When sanctions tighten - most dramatically after the U.S. withdrawal from the JCPOA nuclear deal in 2018 - they deliver a one-two punch: they slash the volume of foreign currency earnings and cripple the usability of the funds that do come in.
"Sanctions create a severe foreign exchange shortage relative to demand," explains an analysis from the World Bank's Iran Economic Monitor. This forces the rial down in a sharp correction, as seen in the dramatic depreciations of 2018-2019 and again in late 2025.
A System Rigged for Distrust: Three Exchange Rates and a Black Market
In an attempt to manage scarcity, Iran operates a complex system of multiple official exchange rates, including a subsidized rate for essential imports and a "NIMA" rate for exporters. However, this system has become an accelerant for crisis.
As Al Jazeera documented in an explainer on Iran's three rates, such systems inevitably create arbitrage opportunities and corruption. Those with political connections can access cheap dollars officially and sell goods priced at much higher open-market rates. This erodes trust and ensures a thriving black market, which becomes the real benchmark for public expectations. When confidence in the official rate evaporates, the parallel market dictates the true price of money.
The Psychology of Crisis: When Dollars Become the Unit of Account
Chronic instability has led to deep dollarization of the Iranian economy. To preserve savings, citizens and businesses rush to convert rials into dollars, gold, or durable goods. This behavior itself creates more demand for foreign currency, speeding up depreciation.
"The exchange rate acts as a key driver of inflation in both the short and long run," notes IMF research, highlighting the powerful role of expectations. In daily life, this means businesses shorten their pricing horizons, anticipating further falls, which embeds inflation more deeply into the economy.
From Chronic to Acute: The "Hyperinflationary" Moments
Iran's inflation typically runs at a punishing 40 to 60% annually. However, the crisis feels hyperinflationary during periodic regime shifts - sudden, large devaluations triggered by a sanction escalation or a loss of policy credibility.
These are the moments when the currency hits a record low, as reported by Reuters in late 2025, and the price of imported goods and staples resets overnight. these jolts are not just economic events; they are social and political triggers, often preceding waves of public unrest, as seen in the protests of early 2026.
The Path Forward: A Dashboard for Disaster or Stabilization?
For economists and citizens alike, the signs of impending trouble or potential stabilization are clear. The key indicators to watch are.
- Sanctions Pressure & Real Oil Revenue: Can Iran actually sell its oil and access the proceeds?
- The Fiscal Deficit: Is the government bridging its spending gap through more bank financing?
- Money Supply Growth: Is money printing accelerating faster than economic ouput?
- The Exchange-Rate Spread: Are the gaps between official, NIMA, and black-market rates widening or converging?
- Dollarization: Are people and businesses continuing to flee the rial?
The resignation of Iran's Central Bank cheif in late 2025, as reported by state media, underscores the immense political pressure of managing this perpetual crisis. Until the fundamental drivers - fiscal dominance, external dominace, external isolation, and institutional credibility - are addressed, Iran's economy will remain on a rollercoaster of chronic inflation punctuated by terrifying, hyperinflationary drops.
Sources: IMF Working Papers, World Bank Iran Economic Monitor, Al Jazeera, Reuters
